Buy Bumi Armada –Exponential Growth Ahead

Exponential growth ahead• Strong candidate for lucrative marginal field development risk service contract • Beneficiary of rising demand of FPSO solutions in the region • Maintain Buy with RM5.00 TP with 25% upside

Best bet for Petronas’ RSC. We expect Bumi Armada to secure the lucrative risk service contract (RSC) for Petronas’ marginal fields next year. Its excellent track record and synergistic O&G services, particularly the FPSO solutions will be viewed favorably by foreign oil players looking for local partner for RSCs. We understand that Bumi Armada is keen to bid for marginal fields and its newly set-up oil field services division is well positioned to leverage on its expertise and aggressively bid for RSCs that command IRR of 11-20%.

FPSO tenders are picking up. We believe that Bumi Armada is likely to bid for more FPSO contracts in Malaysia as jobs are opening up. FPSO tender for Petronas’ RM15bn North Malay basin development (PM301 and PM325) has taken off, potentially to be awarded by year-end to fast-track production by 2013. Petronas is also likely to deploy FPSO solution for its Bunga Dahlia and Teratai fields (PM302). Meanwhile, FPSO tender for ONGC’s Cluster 7 margin al fields in India has started and Bumi Armada is likely to bid for the job. It has purchased an option for an Aframax tanker in early Nov11 (similar to its option purchase for D1 FPSO bid), suggesting another FPSO project in the pipeline.

Maintain Buy. Bumi Armada is our high conviction Buy given its long-term earnings visibility with RM7.2bn firm order book (exclude JV’s D1 FPSO in India worth RM1.9bn) and strong 3-year earnings CAGR of 26%. Its geographically diversified earnings base with large exposure in the growing O&G sector in Asia and Africa is set to propel its growth prospects to become a world champion.